Unit 3 Assignment: Chapter 14 Questions 6,9,10,13,15 and 21 on pages 473 and 474;6. Which security has a higher effective annual interest rate?;a. A 3-month T-bill selling at $97,645 with par value $100,000.;b. A coupon bond selling at par and paying a 10% coupon semiannually.;9. Consider an 8% coupon bond selling for $953.10 with 3 years until maturity making annual coupon payments. The interest rates in the next 3 will be, with certainly, r1 = 8%, r2 = 10%, r3 = 12%. Calculate the yield to maturity and realized compound yield of the bond.;10. Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100coupon once per year.;Unit 3: Template for Chapter 14, Question 10;10.;a.;Zero coupon;8% coupon;10% coupon;Current prices;b. Price 1 year from now;Price increase;Coupon income;Pre-tax income;Pre-tax rate of return;Taxes*;After-tax income;After-tax rate of return;c. Price 1 year from now;Price increase;Coupon income;Pre-tax income;Pre-tax rate of return;Taxes**;After-tax income;After-tax rate of return;a. If all three bonds are now priced to yield 8% to maturity, what are their prices?;b. If you expect their yields to maturity to be 8% at the beginning of next year, what will their prices be then? What is your before-tax holding-period return on each bond? If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your after-tax rate of return be on each?;c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on each bond to be 7% at the beginning of next year.;13. Fill in the table below for the following zero-coupon bonds, all of which have par values of $1,000.;Price;Maturity(years);Bond-Equivalent Yield to Maturity;$400;20;-;$500;20;-;$500;10;-;-;10;10%;-;10;8%;$400;-;8%;13. Unit 3: Template for Chapter 14, Question 13;Price;Maturity;(years);Bond equivalent;YTM;$400.00;20.00;$500.00;20.00;$500.00;10.00;10.00;10.000%;10.00;8.000%;$400.00;8.000%;15. A bond with a coupon rate of 7% makes semiannual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the asked price for the bond on January 30 at 100:02. What is the invoice price of the bond? The coupon period has 182 days.;21. A 30-year maturity, 8% coupon bond paying coupons semiannually is callable in 5 years at a call price of $1,100. The bond currently sells at a yield to maturity of 7% (3.5% per half-year).;a. What is the yield to call?;b. What is the yield to call if the call price is only $1,050?;c. What is the yield to call if the call price is $1,100, but the bond can be called in 2 years instead of 5 years?;CFA Problems 2 and 4 on page 476 and 477;2. Bonds of Zello Corporation with a par value of $1,000 sell for $960, mature in 5 years, and have a 7% annual coupon rate paid semiannually.;a. Calculate the;i. Current yield.;ii. Yield to maturity (to the nearest whole percent, i.e., 3%, 4%, 5%, etc.).;iii. Realized compound yield for an investor with a 3-year holding period and a reinvestment rate of 6% over the period. At the end of 3 years the 7% coupon bonds with 2 years remaining will sell to yield 7%.;b. Cite one major shortcoming for each of the following fixed-income yield measures;i. Current yield.;ii. Yield to maturity.;iii. Realized compound yield.;4. A convertible bond has the following features;Coupon;5.25%;Maturity;June 15, 2027;Market price of bond;$77.50;Market price of underlying common stock;$28.00;Annual dividend;$1.20;Conversion ratio;20.83 shares;Calculate the conversion premium for this bond.;Chapter 15 Questions 10 and 12 on pages 500 and 501;10. The term structure for zero-coupon bonds is currently;Maturity (Years);YTM (%);1;4%;2;5;3;6;Next year at this time, you expect it to be;Maturity (Years);YTM (%);1;5%;2;6;3;7;a. What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond?;b. Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeroes at the end of the year? Is the market?s expectation of the return on the 3- year bond grater or less than yours?;CFA Problem 10, on page 505;10. The spot rates of interest for five U.S. Treasury Securities are shown in the following exhibit. Assume all securities pay interest annually.;Spot Rates of Interest;Term to Maturity;Spot Rate of Interest;1 year;13.00%;2;12.00;3;11.00;4;10.00;5;9.00;a. Compute the 2-year implied forward rate for a deferred loan beginning in 3 years.;b. Compute the price of a 5-year annual-pay Treasury security with a coupon rate of 9% by using the information in the exhibit.
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